George Soros
The asylum policy that emerged from the European Union’s negotiations last month with Turkey became effective on April 4, when 202 asylum-seekers were deported from Greece. The policy has four fundamental flaws.
- It was negotiated with Turkey and imposed on the EU by German Chancellor Angela Merkel.
- It is severely under-funded.
- It is not voluntary, for it establishes quotas that many member states oppose and requires refugees to take up residence in countries where they don’t want to live.
- It transforms Greece into a de facto holding pen with insufficient facilities for the number of asylum-seekers already there.
All of these deficiencies can be corrected. The European Commission implicitly acknowledged some of them on April 6 in a new set of proposals for reforming Europe’s asylum system. But the Commission’s proposals still rely on compulsory quotas. That will never work. Commission First Vice-President Frans Timmermans is inviting an open debate.
A comprehensive asylum policy for Europe, I believe, should establish a firm and reliable annual target of 300,000-500,000 refugees. This is large enough to give refugees the assurance that they can eventually reach their destination, yet small enough to be accommodated even in today’s unfavorable political climate.
There are established techniques for the voluntary matching of supply and demand in other fields, such as matching students to schools and medical interns to hospitals. In the case of refugees, those determined to go to a particular destination would have to wait longer than those who accept the destination allotted to them. Registered asylum-seekers could then be required to await their turn where they are currently located.
This would be much cheaper and less painful than the current chaos, of which the migrants are the main victims. Those who jump the line would lose their place – which should be sufficient inducement to obey the rules.
This plan would require at least €30 billion a year. This includes providing Turkey and other “frontline” countries enough financial support to allow the refugees living there to work and send their children to school; creating a common EU asylum agency and border force; addressing the humanitarian chaos in Greece; and establishing common standards across the EU for receiving and integrating refugees.
The EU undoubtedly has the capacity to raise at least €30 billion a year, which is less than 0.25% of its 28 members’ combined GDP of more than €16 trillion, and less than 0.5% of total spending by its national governments. What is lacking is the political will. The EU’s fiscal rules restrict most member states from running larger deficits and financing them by issuing new debt. That is why the question has not even been raised, let alone seriously considered.
Sooner or later, new taxes will have to be levied to cope with the refugee crisis. Scraping together insufficient funds year after year won’t do the job. By contrast, “surge funding” would enable the EU to respond more effectively to some of the most dangerous consequences, by helping to tip the economic, political, and social dynamics away from xenophobia and disaffection toward constructive outcomes that benefit refugees and countries alike. In the long run, this would reduce Europe’s total spending to contain and recover from the refugee crisis.
There is a strong case to be made for using the EU’s balance sheet to finance the surge. With global interest rates at or near historic lows, now is a particularly good time to utilize the EU’s triple-A credit. Doing so has the additional advantage of providing a much-needed economic stimulus. The amounts involved are of macroeconomic significance, especially as they would be spent almost immediately and exercise a multiplier effect. A growing economy would make it much easier to absorb immigrants, whether refugees or economic migrants.
The question is how to use the EU’s triple-A credit without arousing opposition, particularly in Germany? First, we must recognize that the EU is already a triple-A borrower. During the eurozone crisis, the EU established financial instruments such as the European Financial Stabilization Mechanism (EFSM) and the European Stability Mechanism (ESM), capable of quickly tapping tens of billions of euros on attractive terms.
These entities, which retain considerable borrowing capacity, should be redirected to secure the surge funding required to address the migration crisis. Using an existing mechanism, albeit for a new purpose, would be much more efficient than creating a new one. It would require only a political decision – one that could be taken on short notice.
Two sources of money – the EFSM (for eurozone members) and the Balance of Payments Assistance Facility (for non-eurozone EU members) – should be put to the task. Both are backed entirely by the EU budget – and therefore do not require national guarantees or national parliamentary approval. Their combined gross borrowing capacity is €110 billion, a number corresponding to the EU budget’s annual revenue.
The Balance of Payments Assistance Facility’s €50 billion of borrowing power is almost completely unused. The EFSM has extended some €46.8 billion in loans to Portugal and Ireland but has substantial spare capacity. They jointly have well over €60 billion of capacity, and this capacity grows each year as the loans to Portugal and Ireland are repaid.
As with the euro crisis, the refugee crisis requires a quick response. But it differs from the euro crisis in that the beneficiary countries – Jordan, Turkey, and Greece – are on the front lines of what is a collective European undertaking. They are entitled to grants, and should not be obliged to repay the monies they receive. Instead, the EU and its member states must find new sources of tax revenue to repay the surge funding.
The new tax revenue could come from a variety of sources, including the EU-wide value-added tax, which already provides revenue; a special tax on petrol, as German Finance Minister Wolfgang Schäuble has suggested; or a new tax on inbound EU travel and on visa applications, which would shift some of the burden onto non-EU citizens.
While it will take a long time to complete the process of levying new taxes, bondholders will want to be assured that their bonds will be serviced and repaid. That’s why the EU must guarantee that it will generate the new tax revenue by the time it is needed, even if the exact source has yet to be determined.
The question remains how to generate the necessary political will. The EU is built on democratic principles. I believe there is a silent majority that wants to preserve the Union, even if it is currently not a well-functioning institution. Their political leaders will listen to them if they make their voices heard.
The refugee crisis poses an existential threat to Europe. It would be irresponsible to allow the EU to disintegrate for lack of financing to bring the crisis under control; yet the lack of adequate funding is the main obstacle to successful programs in the frontline countries. Throughout history, governments have issued bonds in response to national emergencies. When should the EU tap its triple-A credit if not at a moment when it is in mortal danger?
George Soros is chair of Soros Fund Management and the Open Society Foundations. A pioneer of the hedge-fund industry, he is the author of many books, including The Alchemy of Finance, The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What it Means and The Tragedy of the European Union: Disintegration or Revival? His most recent book is In Defense of Open Society (Public Affairs, 2019).
